If you’re someone who eschewed the more traditional superannuation funds in favour of setting up and managing your own Self-Managed Super Fund (SMSF), you have to stay abreast of all the rules regarding your SMSF. And one of the more attractive benefits of an SMSF is your ability to invest directly into property.
If your SMSF portfolio includes one or more properties, you’ll no doubt be aware of the strict rules regarding the purchase of this investment property and how it can be used.
So, it makes sense that, as you near retirement age, you may be thinking about living in one of your properties.
But are you allowed?
Can you live in your SMSF property once retired?
An increasing number of people want more control over their own retirement and their retirement income. Which is why it’s estimated about one quarter of the superannuation industry is made up of SMSF.
Of these funds, the Super Guide says ‘the latest Australian Taxation Office (ATO) figures reveal, a significant number of SMSFs do indeed invest in direct property. In the March quarter 2021, approximately 10.5 percent of all SMSF assets were invested in non-residential real property and another 5.6 percent were invested in residential property.’
But what is a SMSF? According to the Australian Taxation Office (ATO):
‘Self-managed super funds (SMSFs) are a way of saving for your retirement.
The difference between an SMSF and other types of funds is that the members of an SMSF are usually also the trustees. This means the members of the SMSF run it for their benefit and are responsible for complying with the super and tax laws.’
As with any type of superannuation fund, the rules surrounding what you can and cannot invest in, are strict. Particularly when it comes to investing in a property asset. For a start, any property purchased by your SMSF needs to pass the sole purpose test.
To be eligible for any of the tax concessions usually available for SMSF funds, your fund and any of its investments, need to meet the sole purpose test. The ATO says:
‘This means your fund needs to be maintained for the sole purpose of providing retirement benefits to your members, or to their dependents if a member dies before retirement.’
And if you get it wrong?
‘Contravening the sole purpose test is very serious. In addition to the fund losing its concessional tax treatment, trustees could face civil and criminal penalties.
It’s likely your fund will not meet the sole purpose test if you or anyone else, directly or indirectly, obtains a financial benefit when making investment decisions and arrangements (other than increasing the return to your fund).’
With the thought of facing civil and criminal penalties if you get it wrong, it pays to get it right. And nearing or reaching your superannuation preservation age or retiring, doesn’t mean these rules no longer apply.
It’s also worth remembering that any property should be purchased by your SMSF because it’s a good investment and not because you plan to live in it after your retirement. Buying commercial or residential properties should be done as part of a considered investment strategy.
Once you retire, you can do one of two things.
You can wind up your SMSF, sell the property and other assets, converting it all to cash and transferring these funds to you. But that’s not what we’re talking about here.
For the purposes of this article, you’d need to do what’s known as an ‘in-specie’ transfer, meaning your SMSF transfers its asset to you as it is. So, rather than your SMSF owning the property, you’re now the owner.
Performing an in-specie transfer means you may be able to avoid stamp duty on the transfer, as well as avoiding all the usual selling and buying costs related to property. However, as stamp duty laws change from time to time, it’s always a good idea to confirm where you stand in your state or territory regarding stamp duty.
You sure can live in the property after you retire as long as:
| Date of Birth | Preservation age |
| Before 1 July 1960 | 55 |
| 1 July 1960 - 30 June 1961 | 56 |
| 1 July 1961 - 30 June 1962 | 57 |
| 1 July 1962 - 30 June 1963 | 58 |
| 1 July 1963 - 30 June 1964 | 59 |
| From 1 July 1964 | 60 |
Don’t forget about Centrelink and the implications of the property transfer on any Centrelink benefits you may be entitled to receive.
Just a reminder from Services Australia:
‘On 1 July 2021, Age Pension age increased to 66 years and 6 months for people born from 1 July 1955 to 31 December 1956, inclusive.
If your birthdate is on or after 1 January 1957, you’ll have to wait until you turn 67. This will be the Age Pension age from 1 July 2023.’
If you’re looking to invest in property via your SMSF, be sure to seek professional advice before making any decisions.